Question 3 a) Aztra Zenika is developing a new improved Covid 19 vaccine. This requires an initial investment of $24 million over one year after which there is a 35% chance of aborting at zero extra cost and an 65% chance of further development over three years at a cost of a further $46 million. At this point they estimate a 60% chance of making net profit of $140 million, a 30% change of making a net profit of $80 million and a 10% chance of making only $30 million. Their corporate discount rate is 7%. Create a decision tree that illustrates these choices and calculate the NPV given the assumptions in the question. Should they go ahead? (10 marks) Page 2 of 3 b) Plummer Products and Lanigan Construction both have 10 million to invest and they expect to produce the following profits (in ,000s): Time Last year 1 2 3 4 5 6 and thereafter Plummer 1000 1000 1200 1400 1600 1800 1800 Lanigan 1000 1000 1150 1300 1450 1600 1800 Both projects predict a 25% profit margin. For every 1 in sales, Plummer has to provide 5p for increase in cost of providing for credit sales, whereas Lanigan only needs to provide 2p. Additionally Plummer will need 3p per 1 in inventory costs and Lanigan will only need 1p. Apart from these costs the profit figures reflect the cash flows. Plummer discounts at 12% and Lanigan at 11%. Which proposal has the higher NPV. Show your calculations